With consumers looking for affordable transportation, demand for compact and midsize cars is generating enough price movement to influence overall wholesale market metrics, according to the latest installment of Guidelines from J.D. Power Valuation Services.
Analysts reported data through August that showed used-vehicle prices are 2% higher on average than during the same eight-month period in 2018. In terms of August, the used-vehicle market’s performance was also better than historic figures for the period.
As a result, the J.D. Power Valuation Services’ Seasonally Adjusted Used Vehicle Price Index for August increased by 0.7% month-over-month to 123.6.
In terms of individual segment performances, J.D. Power Valuation Services explained in the report that year-to-date mainstream passenger car price increases continue to outpace moves involving SUVs.
Analysts pointed out those more affordable small, compact and midsize car segment prices have increased the most with prices for the group rising 6.1% to 9.5%.
“Mainstream SUV segment prices have also increased, however not nearly to the same degree as passenger cars,” the firm said in the report. “One of the primary drivers behind this is the higher levels of zero- to 5-year-old SUV supply returning to the market.
“As for the luxury side of the market, premium segment prices are down across the board and are also feeling the pressure of elevated levels of wholesale volume returning to the market,” J.D. Power Valuation Services added.
In this edition of Guidelines, the firm also touched on its projection for where wholesale prices might land by the end of the year. Analysts anticipate used prices for vehicles up to 8 years in age increasing by 1% to 1.5%.
In a separate news release, J.D. Power Valuation Services executive analyst David Paris elaborated about the reasoning for firm’s forecast.
“At an industry level, used-vehicle prices are expected to remain relatively strong moving forward,” Paris said. “From where prices are currently through the remainder of the year, we are expecting a mild decline, which barring any serious weather impact or economic changes should hold true.
“Used supply will be mixed, positive for cars, negative for SUVs and trucks. The impact of other factors including gas prices, home prices, and labor conditions are is expected to be neutral-to-supportive of used prices,” he went on to say.
While wholesale prices for cars and trucks edged lower, Black Book’s latest Market Insights report contained details to refute the notion that it’s a soft September in the auction lanes.
In fact, Black Book executive vice president of operations Anil Goyal said, “Used-vehicle prices declined slightly last week, although the used market remains relatively strong post Labor Day.”
The newest report indicated that on a volume-weighted basis, overall car segment values decreased by 0.18% last week. That’s coming off of a four-week stretch when analysts noticed that market values remained flat
Among cars, analysts pointed out the values of midsize cars and sporty cars remained strong with each inching lower than the cost of a drive-thru meal.
Looking at volume-weighted truck data, Black Book determined overall values (including pickups, SUVs, and vans) declined by 0.28% last week. That’s more than double the four-week average drop of 0.13% analysts previously pegged.
In the truck space, values of compact vans decreased the most, according to Black Book, sliding by 1.32% or $122.
Rounding out the latest report was the anecdotes Black Book shared from its representatives stationed at nearly 60 sales nationwide. Here are those observations:
— From Nevada: “Buyers are being more cautious as they made their purchases. Mid and full-size SUVs performed well.” Greg in NV
— From Pennsylvania: “It just seemed like an average sale today. SUVs sold well, especially the ones that were offered in the off-lease lanes.”
— From Arizona: “Still a fairly steady market. Trucks and clean, low mileage vehicles brought top dollar.”
— From Illinois: “Some account reps were expecting a large post Labor Day dip in the market, but that was not the case today.”
There appeared to be a bit of a dichotomy in the wholesale vehicle market last month.
The Manheim Used Vehicle Value Index reached a record high (141.3) and was up 1.2% year-over-year. Mix-, mileage- and seasonally adjusted, there was a 0.62% bump up in wholesale prices from July.
But the comparison to last August is a bit “tough,” given the macro-economic dynamics at play in summer 2018, the company said in analysis accompanying its latest index report.
The weekly Manheim Market Report prices once again showed depreciation, albeit very slight, analysts said. This following a steady July for weekly MMR movement.
“Three-year-old vehicle values in aggregate were down 0.5% for the month, when prices normally decline by at least 1%,” analysts said in the report. “As a result of low depreciation, prices in aggregate in non-luxury remain higher than the beginning of the year.
“Last August saw price appreciation, which is why the year-over-year comparison in values is the weakest in more than two years.”
Breaking it down by segment, luxury cars had the most significant year-over-year price growth (1.8%), followed by pickups (up 1.4%). Midsize cars were up 0.2%.
Compact cars (down 2.7%), SUV/CUVs (down 0.1%) and vans (down 1.2%) showed year-over-year price declines.
“Luxury cars and pickups outperformed the overall market, while most other major segments underperformed the overall market,” analysts said. “Last year continues to be a tough comparison for both prices and sales as we experienced an abnormal increase in consumer demand during the summer driven by tariff fears and rising interest rates.”
Breaking down the price data further, auction prices for rental-risk units climbed 0.1% year-over-year and 1.2% month-over-month. Mileage on these vehicles climbed 10% year-over-over and were down 3% sequentially.
If your store can turn luxury cars quickly, your opportunity for decent gross might be at hand stemming from how wholesale prices for those high-line units are moving.
The newest Black Book Market Insights report showed wholesale prices for luxury cars again softened at a much higher rate than the overall car reading.
“Luxury-segment declines continue to offset the strength of mainstream vehicles, which remain relatively strong,” Black Book executive vice president operations Anil Goyal said in the latest report.
Volume-weighted, analysts indicated overall car segment values decreased by 0.15% last week. In comparison, market values for cars ticked just 0.04% on average during the past four weeks.
That movement also mirrored what happened a year ago as Black Book said the same relative four-week period in 2018 also produced an average dip of 0.04%.
Among cars nowadays, analysts noted values of the prestige luxury and luxury car segments decreased the most, dropping by 0.61%.
Conversely, the full-size car segment climbed 0.14%, extending a streak of increasing to four consecutive weeks.
Again volume-weighted, Black Book determined overall truck segment values (including pickups, SUVs, and vans) decreased by 0.16% last week. That’s slightly more than the previous five-week average drop of 0.11%.
Analysts added that they spotted nearly the same average decline in truck values during the same relative five-week stretch last year.
In the truck space, Black Book pointed out the minivan segment decreased the most, sliding by 0.72%, followed closely by the full-size luxury crossover/SUV segment at 0.67%.
Moving on from the numbers, a wide range of anecdotes surfaced from Black Book representatives stationed at nearly 60 sales each week. Here is the rundown from some of those lane observers:
— From South Carolina: “Attendance was down even though the consignment quantity was good. With more vehicles and less competitive bidding, it was not surprising that the market was stable to down a bit.”
— From Florida: “The rental and off-lease lanes were holding their floors, resulting in a higher number of no-sales.”
— From Wisconsin: “Consignment has returned to more normal levels. Looks like trucks will remain strong for several more weeks here. Cargo vans are so scarce that if you run one you are guaranteed a lot of action.”
— From California: “The market remains very positive here as dealers continue to need more vehicles. As a result, sales percentages remain high.”
Update on the specialty markets
With this report being the first one of the month, analysts also provided their insights into how the specialty markets are functioning.
Here is what Black Book shared:
— Collectibles: “The high-end auctions held in Monterey every August are closely watched by the collector car hobby, as they tend to set the tone for the remainder of the year. This year’s total of $264 million was quite a bit less than last year’s $375 million. While there are surely many reasons for the decline, many attendees felt that economic uncertainty and the somewhat stagnant stock market were the primary drivers of the lower sales rates.”
— Powersports: “Whether it’s the end of summer, recent economic news (yield curve inversion, anyone?), or other factors at play, prices have taken a big hit this month nearly across the board as all of the motorcycle and off-road segments are down significantly.”
— Recreational vehicles: “As we near the end of summer, and approach the beginning of fall, we’re seeing the market begin its normal seasonal shift. The bulk of consumer RV purchases is done in the spring and summer, so that’s when dealers typically stock up on inventory. As colder weather approaches, dealers are beginning to sell down their existing inventory, and are only buying to fill specific needs on their lots so as to not have to carry too many unsold units over the winter.”
— Medium duty: “Light-duty commercial units have been relatively stable over the past couple of months despite an increase in supply. Auction prices continue to fall as new and used inventory increases across the country.”
— Heavy duty: “Construction units once again did well at auction, relative to the other HD segments. Regional and over-the-road segments have continued heavy depreciation since our last report. A lack of demand coupled with excessive supply has created a market where buyers can pick and choose their units and their price.”
Experian’s latest quarterly data report again mentioned how consumer affordability is impacting auto-finance metrics.
And consumer affordability also impacted Black Book’s Used Vehicle Retention Index for August.
This week, analysts released their latest index reading, which showed that August posted a 1.4% lift on a sequential basis. The index came in at 116.6, up from 115.0 in July.
“The strength of used market was fairly broad in August with almost all vehicle segments registering an increase in the Index. Sub-Compact Cars Index showed the highest increase at 2.1% month-over-month, highlighting the demand for affordable vehicles,” said Anil Goyal, Black Book’s executive vice president of operations.
“The near-luxury cars index is also showing a bounce off the lows now after declining for the last five years,” added Goyal, who is among the experts set to appear during Used Car Week, which begins on Nov. 11 at the Red Rock Resort in Las Vegas.
The Black Book Used Vehicle Retention Index is calculated using Black Book’s published wholesale average value on 2- to 6-year-old used vehicles, as a percent of original typically-equipped MSRP. It is weighted based on registration volume and adjusted for seasonality, vehicle age, mileage and condition.
The index dates to January 2005 when Black Book published a benchmark index value of 100.0 for the market. During 2008, the index dropped by 14.1% while during 2016, the index fell by just 6.4%.
During 2011, the index rose strongly from 113.3 to 123.0 by the end of the year as the economy picked up steam and used vehicle values rose higher. It continued to remain relatively stable, rising slightly until May of 2014 when it hit a peak of 128.1.
To obtain a copy of the latest Black Book Wholesale Value Index, go to this website.
Black Book’s team of analysts are looking to see how much used metal dealerships turned during Labor Day weekend to get a better handle on how wholesale prices might move during the remainder of the year.
Heading into the holiday sales stretch, the Black Book Market Insights report showed wholesale values didn’t change much as dealers finalized their inventories for the arrival of September.
“Markets remained stable with strong bidding at the auctions ahead of Labor Day. The retail market during the weekend will set the direction for the remainder of the year,” Black Book executive vice president of operations Anil Goyal said in the latest report.
Based on volume-weighted data, analysts determined overall car segment values increased by 0.04% last week. In comparison, market values for had decreased by 0.06% on average during the prior four-week stretch.
Among cars, Black Book noticed values of compact cars increased the most, climbing by 0.21% or $17.
Meanwhile on the truck side, analysts assembled their overall volume-weighted data and found that values (including pickups, SUVs, and vans) ticked 0.06% lower last week. That’s not quite as much as the four-week average decrease, which was 0.11%
Going counter to the overall movements, Black Book determined values of full-size vans rose by 0.43% or $67, the most among the trucks.
Turning next to what Black Book observers noticed in the lanes, a mixed bag of anecdotes surfaced. Here is the rundown:
— From Michigan: “Vehicles are fetching extra bids that make for a robust auction. Also, dealers are reporting above average retail traffic.”
— From Illinois: “The auctioneer stated that the market is hard to assess now. Vehicles with lower-condition scores are holding their own while the others are experiencing more no-sales which is unusual.”
— From Washington: “We had a good selection of nice, clean units along with the lower-priced vehicles. Prices seemed to be up slightly on most of the inventory.”
Dealers who might be accustomed to seeing wholesale prices cool a bit when the outside temperatures are their warmest likely are leaving the lanes disappointed.
The latest Black Book Market Insights report again detailed how wholesale prices are holding at higher levels this summer.
In fact, overall car segment values increased by 0.06% last week, according to Black Book’s volume-weighted data. Analysts noted that wholesale values for cars softened by 0.14% on average during the prior four-week period.
Going against the overall trend, Black Book reported that values of luxury cars decreased the most, declining by 0.46% or $85.
Meanwhile over on the truck side, analysts found that overall values (including pickups, SUVs, and vans) dropped by 0.19% last week. That reading was a bit larger than four-week average dip of 0.10%.
Among trucks, Black Book indicated values of compact vans declined the most, ticking down by 0.51% or $47.
“As opposed to the typical weakness seen in the summer, the market is experiencing sustained strength. Mainstream sedans were particularly strong last week,” Black Book executive vice president of operations Anil Goyal said in the report.
Black Book began its rundown of anecdotes the nearly 60 sales representatives attend each week with another mention of summertime conditions at the auction. Here are those observations:
— From Nevada: “Trucks and SUVs were in high demand today. Dealers here remain upbeat even with the dreadfully hot weather.”
— From Georgia: “They sold almost everything in many lanes here. Passenger cars, trucks and SUVs under $12,000 sold the best in any lane.”
— From Michigan: “Consignment was down quite a bit today. One segment that stood out today was the 3- or 4-year-old full-size SUVs.”
— From Florida: “The auction results remain steady. The units with good history sold. However, some dealers are starting to complain about a lack of retail traffic at their store.”
Certified pre-owned vehicle sales continue to be a bright spot for franchised dealerships this year, and KAR Auction Services chief economist Tom Kontos explained how those vehicles that become CPO units helped consignors and the wholesale market in July, too.
According to ADESA Analytical Services’ monthly analysis of wholesale used vehicle prices by vehicle model class, wholesale used vehicle prices in July averaged $11,452, representing a 0.2% softening compared to June but a 5.1% lift relative to July of last year.
Kontos pointed out all vehicle segments showed month-over-month declines in average prices except compact cars, compact pickups and full-size pickups; just some of the segments ripe for CPO.
“Average wholesale prices in July were flat relative to June and remained up on a year-over-year basis largely on the price strength and growing share of truck-segment sales. CPO sales continue to buoy off-lease vehicle prices,” Kontos said.
Based on data from the National Automobile Dealers Association, he continued in his latest installment of the Kontos Kommentary that July retail used vehicle sales by franchised and independent dealers dipped 2.1% month-over-month and 1.9% year-over-year.
While July CPO sales were down 1.8% from the prior month, Kontos pointed out they rose 6.0% year-over-year, according to figures from Autodata. On a year-to-date basis, Kontos noted CPO sales are 1.9% higher versus last year.
Besides the previously mentioned trio of vehicle segments that stayed strong in July, Kontos also highlighted significant upward movements by two other specific kinds of vehicles that oftentimes land in dealership CPO inventory. He looked at midsize cars and midsize SUV/CUVs while holding constant for sale type, model-year age, mileage and model class segment — criteria that typically characterize off-lease units.
For those midsize cars, wholesale prices jumped $501 or 4.1% to $12,670. For those midsize SUV/CUVs, wholesale prices moved up even more, rising by $783 or 3.8% to $21,323.
Kontos wrapped up his latest look at the wholesale space by mentioning average wholesale prices in July for used vehicles remarketed by manufacturers rose 2.7% month-over-month and 6.1% year-over-year.
He spotted that July prices for fleet/lease consignors edged up 0.4% sequentially and 4.3% annually.
Kontos added that average prices in July for dealer consignors slid 1.2% versus June but jumped 4.1% relative to a year earlier.
ADESA Wholesale Used-Vehicle Price Trends
| |
Average |
Price |
($/Unit) |
Latest |
Month Versus |
| |
July 2019 |
June 2019 |
July 2018 |
Prior Month |
Prior Year |
| |
|
|
|
|
|
| Total All Vehicles |
$11,452 |
$11,478 |
$10,892 |
-0.2% |
5.1% |
| |
|
|
|
|
|
| Total Cars |
$8,654 |
$8,688 |
$8,511 |
-0.4% |
1.7% |
| Compact Car |
$6,609 |
$6,550 |
$6,427 |
0.9% |
2.8% |
| Midsize Car |
$7,444 |
$7,474 |
$7,449 |
-0.4% |
-0.1% |
| Full-size Car |
$7,886 |
$7,921 |
$7,258 |
-0.4% |
8.6% |
| Luxury Car |
$13,347 |
$13,456 |
$13,295 |
-0.8% |
0.4% |
| Sporty Car |
$14,673 |
$14,981 |
$14,213 |
-2.1% |
3.2% |
| |
|
|
|
|
|
| Total Trucks |
$13,618 |
$13,637 |
$12,914 |
-0.1% |
5.5% |
| Minivan |
$8,404 |
$8,626 |
$7,927 |
-2.6% |
6.0% |
| Full-size Van |
$13,082 |
$13,100 |
$13,309 |
-0.1% |
-1.7% |
| Compact SUV/CUV |
$11,173 |
$11,224 |
$10,793 |
-0.5% |
3.5% |
| Midsize SUV/CUV |
$11,774 |
$11,885 |
$10,984 |
-0.7% |
7.2% |
| Full-size SUV/CUV |
$14,084 |
$14,736 |
$13,185 |
-4.4% |
6.8% |
| Luxury SUV/CUV |
$18,839 |
$19,081 |
$18,498 |
-1.3% |
1.8% |
| Compact Pickup |
$11,345 |
$11,017 |
$9,790 |
3.0% |
15.9% |
| Full-size Pickup |
$17,479 |
$17,243 |
$16,578 |
1.4% |
5.4% |
Source: ADESA Analytical Services.
Just like consumers, dealers are trying to find affordable vehicles.
And the newest Black Book Market Insights report showed both groups might be having trouble achieving that goal.
In fact, analysts determined that overall car segment values rose this past week, mimicking a scenario spotted at this time a year ago.
“History repeats itself with broad market strength in the summer much like last year’s trend. Affordable vehicles showed the highest lift in values,” Black Book executive vice president of operations Anil Goyal said in the latest report.
Volume-weighted, Black Book found that overall car segment values increased by 0.11% last week. In comparison, market values for cars had decreased by 0.30% on average during the prior 4-week period.
Among cars, analysts reported values of compact cars climbed the most, rising by 0.26% or $21.
Meanwhile, volume-weighted information showed overall truck segment values ticked lower, but not by much. Values for pickups, SUVs, and vans softened by 0.08% a week ago; a little more than half the four-week average decline of 0.15%.
In the truck space, values of sub-compact crossovers rose the most, increasing by 0.19% or $21.
Turning next to what Black Book representatives in the lanes noticed when attending nearly 60 sales nationwide, not only are prices on the rise, vehicles in certain conditions are a challenge to acquire. Here is the rundown:
— From South Carolina: “Very few no-sales today and the prices were strong. Once again, the older, higher-mileage vehicles drew a lot of attention and brought really good money.”
— From Pennsylvania: “The auction enjoyed a 70% conversion rate today, which is really strong for August.”
— From Nevada: “Sedans and luxury vehicles were soft this week, but trucks continue to perform well.”
— From Indiana: “There is a continued shortage of clean to extra clean units in the auctions.”
The team at J.D. Power Valuation Services pinpointed three reasons why used-vehicle wholesale prices through July on average came in 2.1% higher than during the same seven-month period in 2018.
In the latest edition of Guidelines, analysts attributed the factors triggering that wholesale-price growth as:
— Higher new-vehicle prices and affordability concerns
— High levels of clean late-model off-lease units entering the market
— Increased dealer demand for used vehicles
With those elements in play, the J.D. Power Valuation Services’ Seasonally Adjusted Used Vehicle Price Index for July increased by 0.6% month-over-month to 122.7.
“In terms of individual segment performances, year-to-date mainstream passenger car price increases continue outpacing their SUV counterparts,” analysts said in the report.
“More affordable small, compact and midsize car segment prices have increased the most, while mainstream SUV segment prices have also increased, however not nearly to the same degree as passenger cars,” they continued, while mentioning that one of the primary drivers behind that development is higher levels of SUVs up to 5 years old returning to the market.
“As for the luxury side of the market, premium segment prices are down across the board and are also feeling the pressure of elevated levels of wholesale volume returning to the market,” J.D. Power Valuation Service went on to say.
In light of how prices have moved through the first seven months of the year, analysts also updated their 2019 price forecast.
J.D. Power Valuation Services’ 2019 forecast has used prices for vehicles up to 8 years in age, increasing by around 1%.
“From where prices are currently through the remainder of the year, we are expecting a mild decline, which barring any serious economic changes or a dramatic shift in new vehicle incentive strategies should hold true,” analysts said.
“Credit conditions and incentives are expected to apply additional downward pressure, while used supply will be mixed, positive for cars, negative for SUVs and trucks,” they continued. “The impact of other factors including gas prices, home prices and labor conditions are is expected to be neutral-to-supportive of used prices.”
